BMI view: The overall value of the construction industry is expected to reach UAH38.1bnin 2011, with a robust return to growth following three consecutive years of contraction. We expect real growth to come in at around 7.13% in 2011 and thereafter remain at a healthy and stable rate of between 3% and 4% over the medium term, which is positive news for the sector. This growth will be sustained by residential and non-residential building as well as infrastructure investment, with both sub-sectors contributing fairly evenly to overall sector growth.

Ukraine Infrastructure Market Report Q1 2012

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Key themes include: Ukraine’s reliance on Russian oil and gas is a continuing cause for concern, as relations with its eastern neighbour remain fragile and unpredictable. In Q411, these tensions became even more acute. As well as risking greater isolation in the West, the recent sentencing of former Prime Minister Yulia Tymoshenko to seven years in jail has further soured already strained relations with Russia in recent months, as the sentencing directly criminalises the natural gas import contract signed between the two countries in 2009. We currently see few, if any, signs that the government is looking to mend ties with Moscow, and believe that the chances of Ukraine joining a Russian-led customs union are slim for the foreseeable future.

Meanwhile, a major construction project should prove a sizeable boost for the sector. The authorities in Kyiv have announced a tender for a US$2-US$10bn international business center in the city. The results of the tender were to be announced in November 2011, with the city set to spend US$200mn on preparatory work. Five land plots have already been considered for the project including the Osokorky- Pivnichni district, near Odesska Square, the Pivnichna Telychka and Dniprovska Naberezhna, and Vyrlytsia Lake.

The government has already announced the privatisation of two coal-fired power operators, Dniproenergo and Zakhidenergo, and nine of the twenty-seven state-owned distribution companies. According to Reuters, the estimated value of the assets is between UAH6bn and UAH6.1bn (US$753- US$765mn). Ukrainian tycoon Rinat Akhmetov, the founder and president of SCM Holdings, a Ukrainian telecoms-to-mining conglomerate, has reportedly expressed interest in the assets. We anticipate that Ukraine’s rapprochement with Russia under the Presidency of Victor Yanukovich may also prompt some Russian interest in the assets.